Welfare Reform: Benefit Cap 'May Create Couple Penalty' Says IFS

The government's benefit cap may create a "couple penalty" in the welfare system, encouraging spouses and partners to live apart, a leading economic think-tank warned today.

The controversial £26,000 limit on the total amount of benefits claimed by any household was described as "incoherent" by the Institute for Fiscal Studies (IFS) in an analysis which warned of undesirable consequences.

The government yesterday insisted it would press ahead with the cap, overturning a defeat in the House of Lords, but offered the concession of a nine-month grace period for families to find work or move home before the limit is imposed.

About 67,000 households across Britain are expected to lose an average of £83 each week in benefits when the cap - set at £350 a week for childless single people and £500 for others - is implemented in 2013/14, said the IFS.

The move will save £290 million a year from the government's £18 billion welfare bill, but critics warn it will drive larger families into cheaper accommodation and make areas of cities such as London unaffordable for those claiming benefits.

IFS research economist Robert Joyce said in a paper published today that it would hit all couples with four children and no private income who pay rent of £127 a week or more - a "plausible" level for privately-rented homes or social housing tenants in London.
Smaller families in high-rent areas could also be hit, he said.

The government believes that the change will encourage families to move to cheaper homes or take up paid work.

But Joyce noted that it could also reduce fertility rates and encourage partners to live separately.

"A... possible behavioural impact is for fewer people to cohabit, since the benefits cap is to apply at the household level, and hence living apart could split benefits across households and mean that neither is subject to a cap," wrote Joyce.

"This 'couple penalty' is presumably something the government would not be keen on, as it has said that it wishes to reduce couple penalties in the tax and benefit system."

Fertility rates could also drop, because the cap "will effectively reduce state financial support for some large families", wrote Mr Joyce, adding: "If this were the main intended impact, though, one would expect to see the policy affecting only new claimants of child-contingent benefits."

He also questioned whether a cap targeting couples with several children or high rent was an appropriate response to concerns about "excessive" benefit payments.

"If (the government) thinks that the benefit system is giving some families a level of entitlement that is too high, it must believe that some benefit rates are inappropriately high," wrote Joyce.

"The best-targeted response would surely be to change those benefit rates...

"The apparent simplicity of instead just placing a cap on total benefit receipt might look appealing, and may well be politically expedient.
"But it seems incoherent for a Government to set a system of benefits which it evidently thinks gives some families excessive entitlements, and to then attempt to 'right this wrong' with a cap. If starting from scratch, this is surely not the approach one should want to take."